Q2 2020 Pinnacle West Capital Corp Earnings Call
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It is now my pleasure to introduce your host Stephanie like director of Investor Relations. Thank you you may begin.
Thank you Christine I would like to thank everyone for participating in this conference call on webcast to review our second quarter 2020, earning recent developments in operating performance. Our speakers today will be our chairman and CEO, Jeff Goldner Nrcs I was tied geissler, Jim Hot field, he couldn't ministry the Bossert, Daniel furniture Ats its president.
COO and Barber like with senior Vice President Public policy are also here with us.
First thing you to cover a few details with you the flights that we will be using are available on our investor Relations website, along with our earnings release related information note that thislife contain reconciliations of certain non-GAAP financial information.
His comments that are swipe contain forward looking statements based on current expectations and actual results may differ materially from expectation.
Our second quarter 2020 form 10-Q was filed this morning.
Part of that document for forward looking statements cautionary language evolve risk factors and DNA section, which identifies risks and uncertainties that could cause actual results to differ materially from those can do not disclose or.
A replay of this call will be available shortly on our website for the next 30 days.
Also be available by telephone through August 13th 2020, I will now turn the call over to John.
Thank you Stephanie and thank you all for joining us today.
I'd actually like to begin todays call by expressing my Mets appreciation to our team.
All of Us and leadership stand in the incredible strikes and adaptability.
We're continually impressed by their capacity for others and there should drive to do their very best each day to serve our customers our stakeholders.
Our communities.
The culture and engagement at worst driving to create throughout the organization is key to our success in navigating the ongoing coordinating challenges.
Our plants are operating with impressive reliability during a severe Arizona summer.
Our crews have kept the lifestyle.
Customers are being served.
Our customers are benefiting from an exceptional commitment to service demonstrated by our people.
I'm also pleased to report that through the end of the second quarter, we remain in line with our expectations for the year.
I'll provide a brief overview of the current status of coated 19 in Arizona, and then some operational and regulatory updates.
Well, whether variations are typical we experienced an unusually hot second quarter. This year that followed a mild second quarter last year.
So Ted will provide more details regarding the impact of whether given the year over year change took us from really want extreme to the other.
And Tom will then offer review of our financial performance in our future forecast.
As you know from March 13 through May 12, many businesses in Arizona were closed and the Governor asked residents to stay home.
And I do see stay home stay healthy and stay connected order expired on may 15th and in early June the state began to see an increase in covert 19 cases.
As a result on June 20 night, the Governor paused operations of bars, and nightclubs gems movie theaters and Waterparks through August cap.
And delayed the first day of in person school to August 17th.
The Governor's latest executive order true issued on July night.
Limits indoor dining to less than 50% occupancy.
On July 30.
And as last update the governor shared that Arizona's numbers are trending down a positive cases emergency room visits from koby like symptoms that hospitalizations for cobot cases.
Have all decreased over the last month.
Importantly, the state is focused on reducing the number of people infected by in fact shifts person to less than one.
By July 15th Arizona Cheap this goal with an are not of 0.9.
And the numbers are continuing to trend down I know that's indicator that he's a very focused on.
As we stated previously we cannot predict what the ultimate impact for Carbonite team will be however, we remain committed to providing relevant and timely information as to covert pandemic evolves.
From an operations perspective, we continue to execute well under new work protocols, we completed two major planned outages.
One at four corners unit, five and a refueling outage at Palo Verde unit to this quarter.
Those and other prefer activities prepared us for a peak summer season, which brings both extreme temperatures and increased customer demand.
Well, we're experiencing above average wildfire activity. This season, our robust fire mitigation efforts preparation and planning is serving us well and helping to protect the communities, we serve and our infrastructure.
And at least one instance that far mitigation training will be on keeping the power on for our customers want to share a story about one of our customer service men.
Ron Walker was driving from a job in sedona to his home in Flagstaff, where he saw a car on fire on the side of the freeway.
Without hesitation, Ron pulled over to help using his fire extinguishers hydration packing a shovel to keep the fire from spreading until firefighters could reach the seen some 30 minutes later.
Ron's quick smart and safe actions helped keep the situation from becoming severe and demonstrated his personal commitment and if you have to his dedication to doing the right thing for our neighbors.
Turning to another kind of preparation on June 26, we filed our 15 your integrated resource plan, providing afford look into our resource planning needs.
Between 2020, and 2024, we expect approximately 2500 megawatts of renewable energy demand response energy efficiency and energy storage will be needed to make progress towards our clean energy commitment.
We expect the renewable energy additions will include wind and solar generation with the exact mix determined through all source RFP procurement processes.
In fact.
We're already executing on our plan. We're currently finalizing contract negotiations from our 2019, our fees for new clean energy resources, and we expect to announce the result soon.
We also expect issue another all source RFP later, this year that will support customer reliability and our clean energy goals.
The longer term look from 2023 2035 project service territory growth driven by population growth economic growth data center growth and changing customer trends related to electric vehicles and distributed generation.
The positive economic environment, Arizona offers to businesses understates focus on encouraging technology and development are key drivers there.
In addition to resource needs to meet that anticipated growth approximately 1400 megawatts of coal are scheduled to be retired and another 1600 megawatts of gas purchase agreements are scheduled to expire over the next decade.
These resource requirements in contracts roll off coupled with the need for additional capacity to meet our anticipated peak demand growth.
Results in a capacity needs are approximately 6000 megawatts by 2035.
We're committed to our goal of being carbon free by 2050 and up has outlined in our IR piece support this objective.
We also recently released a report on the Mcmaken battery event that occurred last year with the conclusion of that investigation.
We're now positioned to evaluate the safest and most effective way to move forward integrating additional storage on our system, including a refreshing the energy storage procurement activities that were already underway at the time does it make making of that.
On the regulatory front.
The administrative law Judge granted the Corporation Commission staff in the residential utility consumer offices dry request for a 60 day extension.
Filed testimony in our pending rate case, the new date for staff and Intervenors filed testimony, we will be October 2nd 2020.
With the rate design testimony due October night, and the hearing is now scheduled to begin on December 14th 2020.
Well the rate case, some regulatory relationships remain top of mind and key priorities for the remainder of 2020. We're also focused on providing reliable service through our peak summer season.
Emphasizing our cost management initiatives to support both our financial performance and customer affordability and continuing to transition to a cleaner energy mix.
Lastly, I Wanna mention that well covered 19 has created significant challenges there are many lessons learned and achievements made.
We may not have thought possible previously to the pandemic.
Our culture transformation is focused on a growth mindset, which means learning from challenges and seeking continuous improvement.
I'm pleased that that's exactly what we and the team are doing all right. Thank you for your time today and I'll turn it over to test.
Thank you, Jeff and thank you everyone again for joining US today, Jeff recognized a number of our teams accomplishments and I'd also like to add to that I mentioned ingest receipt of the smart electric power Lions individual powerplay or the your award.
This award recognized Jeffers demonstrated leadership and innovation to advance clean energy and its value as a resource to help meet the future needs of our customers on behalf of the entire panic West team I want to express our congratulations and depreciation for Jeffs leadership et cetera. This recognition for your support Jeff of our clean energy plan is.
Well deserved.
Turning now to earnings update I'll cover our second quarter results economic activity successes in our cost savings initiative and forward looking expectations.
Our performance in the second quarter remains strong despite impacts of cowen, earning $1.71 per share compared to $1.28 per share in the second quarter of 2019.
Above average temperatures continued cost management and higher pension and OPEB non service credits contributed to the increase in earnings.
As we've highlighted before whether can be a significant factor in our annual earnings.
The above average temperatures from this quarter combined with the below average temperatures in the second quarter last year added 43 cents to earnings year over year compared to normal weather added 37 million of pre tax gross margin or 25 cents per share.
We also experienced 2.4% customer growth in the second quarter 2020, compared to the same period last year.
These positive drivers were partially offset by a 1.3% reduction in weather normalized sales for the quarter, including the impact from Cowen.
From May fit 13, when businesses started reopening through July 20, Eightth weather normalized sales were essentially flat compared to the same period last year, we continue to see a reduction in weather normalized commercial and industrial sales of 4% Offsite offset by an increase in weather normalized residential sales of 4%.
In June we experienced 2.5% customer growth and 0.8% weather normalized sales growth, reflecting the growth in our service territory and continued improvement in our economy. Following the full covert closure period earlier this quarter.
In addition to customer growth.
Whether it's been impactful this year, notably on July Thirtyth between five and six PM our customers required a new all time high peak energy demand a 7660 megawatts. This exceeded the prior peak set in 2017 by nearly 300 megawatts our company performed exceptionally well.
And delivered reliable service to our customers across the state in order to keep our communities cool and comfortable I.
I want to thank our entire operations team, who stepped up once again to serve customers with reliable power during these extreme conditions.
This year's peak demand record as an example of how important are resource planning efforts have become.
Although weather normalized sales may be relatively flat, which reflects full day customer usage.
We plan for the Summertime peak demand, which informs our resource procurement needs. This means regardless of sales growth our customers have a growing peak energy demand that requires new resources and customer programs in order to serve reliably through the summer period.
I recently filed integrated resource plan outlined at this point very well.
Well the extreme heat has been a driver this year weather normalized sales may continue to lag during the near term as a result of covert 19.
Long term however, we remain confident in the growth of our service territory.
According to the Phoenix business Journal Taylor Morrison home Corp. had its best month, and Scottsdale Homebuilders history. The company finished June 2020, with a 94% increase in net sales year over year and had an all time high monthly pace of average sales per community.
Further demonstrating the strength in our market the Phoenix business Journal reported 9% year over year gains in home price growth during Q2, representing the highest growth among 19 U.S. cities measured by the case Shiller index.
So side, we continue to expect solid growth in our service territory as new developments are announced each month. Amazon recently purchased 91 acres of land next to 112 acre parcel being developed in a new industrial Park.
In Metro Phoenix Merit partners the developer the recently constructed Red Bull and White clock facilities purchased 83 acres with plans to develop another industrial part and in Buckeye.
Retailer five below announced it will build and 850000 square foot facility with construction expected to be completed in 2021.
The center is expected to create 150 jobs initially with plans to grow to 290 jobs in five years.
Well the labor market in Arizona was impacted by Cobot construction was deemed and a central service and work continued throughout the shutdown for 2020 through the end of May.
Employment Metro Phoenix decreased 8.7 per cent compared to 4.4% for the entire U.S.
Manufacturing employment and Metro Phoenix decreased 2.5%, however, construction employment increased by 3.1% as local residential and commercial construction projects continue.
The economic highlights discussed above reinforce our 2.4% customer growth that we saw this past quarter.
Turning to cost management, we continue to focus on eliminating waste and achieving efficiencies as a means to keep customer rates affordable.
I'd like to share a few recent examples demonstrating our team's commitment.
German operations team delivered new savings by negotiating lower prices with certain vendors through maximizing the competitive bidding process and driving efficiency gains with vendor contracts.
These efforts along with negotiating early pay discounts contributed approximately $5 million and savings through the end of the second quarter.
In addition, our customer service team implemented new process modifications automation and revised training that eliminated the need for certain external resources saving approximately 500000 2020 with additional savings plan for 2021.
Some savings large somewhere on the smaller side, but the point is we're developing a lean culture, where employees continuously look for efficiencies and ways to improve service to our customers.
These and other cost savings initiatives helped offset covert 19 expenses such as testing and PB. They also allowed or company to support our customers and communities with additional bill assistance and charitable donations. During this unprecedented time.
Now turning to our capital program.
4.7 billion a capex, we projected through 2022 on slide 15 is consistent with the investments needed to support our resource additions as depicted in the recently filed I RP.
As Jeff mentioned will use our standard competitive RFP process to procure additional clean generation resources, and we expect to continue utilizing a mix of owned and purchase resources.
For our future earnings expectations in 2020 guidance. Despite the impacts from coven 19 experienced thus far we continue to expect Pinnacle West consolidated earnings for 2020 will be in the range of for 75 to 495 per share.
Given the impacts of Covance through reduced our 2020 weather normalized year over year sales growth expectations from 1% to 2% growth the flat to negative 1%.
We also reduced our 2020 to 2022 weather normalized sales expectations from an increase of 1% to 2% to an increase of 0.5% to 1.5%.
Offsetting these decreases and 2020 sales as a decrease in adjusted on M. expense a decrease in interest expense net of after you do see.
An increase in other income and a decrease in our estimated effective tax rate.
A complete list of factors and assumptions underlying our 2020 guidance can be found on slides three and four.
With respect to financing plans for the remainder of the year. We expect this you up to 4 million of additional term debt at if yes, and do not expect to issue equity in 2020.
Despite the unexpected circumstances, so far this year, we remain focused on hitting our metrics and serving our customers with clean affordable and reliable power.
Our team has done a remarkable job working through extreme summer conditions embracing new ways of working due to covert and taking care of our customers with reliable service and industry, leading financial support our long term goals remain intact and we look forward to taking steps in the near term to continue implementing our clean energy plan.
We are embracing a growth mindset to build upon the learnings from the first half of this year, while delivering value to our shareholders and honoring our commitments to our customers and stakeholders going forward.
This concludes our prepared remarks, I'll now turn the call back over to the operator for questions.
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Thank you. Our first question comes from the line of Michael Weinstein with Credit Suisse. Please proceed with your question.
Hi, Good afternoon, guys, good Hey, Michael There Michael Hey.
On the gross margin financial outlook, where I notice, it's it's a little bit lower than back in May is that all cobot related or is there some other dynamics happening there.
No Michael you're absolutely right, that's just simply reflecting the adjustment in our expected weather normalized sales for the year given the impact of coven.
Got it and then the other numbers are all a intending to offset that.
That's correct.
Is it a in I think you add it all up it comes out so little bit lower.
Overall expectation that before although yard maintaining guidance there any other factors that may not be on the page that we that would be positive and offsetting.
No nothing else there Michael you know, we we've got ranges listed a we're being conservative with our weather normalized sales expectation for the balance of the year.
As we said through June were really <unk>, 0.3% negative, but we gave a range of flat to negative 1%, but the other adjustments should offset but we're confident in our year end guidance range of for 75 to 495.
Gotcha and he'd yes, you know, what's the delay and the procedural schedule a little bit further so that rate case, it looks like the hearings will start after the election.
This being that we should wait until after the next year probably for in kind of settlement process to take place or one I think we were talking before maybe about partial settlement.
Timber, but need it looks like you that maybe all pushed out into next year that at the right way to think about it yeah. Michael you I mean, you kind of flag that one of the issues, which is when the procedural schedule pushes out.
It it puts the window.
Between staffing intervenor testimony as we've said before typically you can't really.
Again, I had a real settlement process before do you see staffing intervenor testimony bookend.
The ranges I'd point out to that in the last response that the commission staff filed they were pretty clear that they were looking for.
An indication from the bench, if there was settlement and otherwise they're proceeding down to litigated case, and so now you've got an added complexity that that bench may change.
So we're still we're still open for discussions with anybody that wants to talk about issues. There still ways that you could potentially tickets is off the table I think it's harder to see a comprehensive settlement in a traditional rate case settlement process coming about right now and if that were to happen. It probably would happen in later probably next year.
Sure, but again, then you're going to be in the middle of the hearings.
So often as watch and see how that develops.
Okay. Thank you very much thanks, Michael.
Our next question comes from the line UBS sharper user with Guggenheim. Please proceed with your question.
Hey, tied in Jaffray, guys doing a good shot Hari.
Well, let me just just follow up on Michael's question on on sort of the settlement here.
Having discussions right now and sort of how our discussions for make right. I mean is are you gaining a little bit attraction here and then just delaying that schedule shifts it puts your thinking about the timing of the next rate case, and then turn your plans to it's just sort of raise equity did you.
He said later in 2001, the early 22.
Yeah sure on the on the settlement question I mean were.
To the extent you talk to you have a customer for example, we would come in and say I'm interested in.
This kind of new program you can have those conversations at any point in the process and so we'd continue I think that notion of kind of the traditional comprehensive settlement discussions.
Those aren't happening and again I think staff would be looking for a signal from the bench to begin to do that and that's less likely to happen I think now with this commission, but we're open to talking to anybody who wants to talk about taking issues off the table or working through a different aspects and even if you don't get a comprehensive settlement. It helps you work through issues and make the hearing.
A hearing more streamlined.
Eaton kind of have to see how the hearing process goes in order to see what timing effects that would have on the next case. So I don't really no no change in plans right now, but we need to watch how to escape proceeds I'd like.
And then just sorry, but nothing address the delay in the rate case, not thinking about the next rate case and equity.
Well, yes, sorry, this Ted the way I think about that is it really depends on the timing an outcome of the current case rent. So once this case concludes we'll evaluate the outcome and that'll really informed the timing of the next case as well as timing of equity needs.
Got it and then just and you know most of the recent renewable clean target proposed rules in the energy rules document I eat staffs and Burns Kennedy's seems to follow the goals you guys have already put out.
Are there any kind of puts or takes that we should be thinking about a dialogue continues with interim step targets.
Five years be less desirable than a straightforward endpoint neutral 2050 and has there been any more conversations about alternative mechanisms.
Right, that's a solar and storage. So you don't have to be cereals pilot or is the preference with the agency and stakeholders keeping status quo.
Yeah sure I think.
What's encouraging is directionally feels like there's a lot of alignment in terms of the the direction. We're going obviously the details are important and you do have to look out and I think some of that comments that we'd make and other parties would make is how do you think about interim goal. So we wanted to make sure with ours that we didnt just set a 2050 target.
And then you know nothing until 2050, a and so we had put 2030 goal and in place.
The challenges you get more granular as it just gets harder on the procurement. So you lose some flexibility. So if you were to have a goals every year. Every two years, then it's a little bit harder to try to do that procurement and the flexibility that you can get around different technologies with that.
And so that it's a evolving conversation I think that you know just watch the filings in the comments that come into those to that docket with respect to tracking mechanisms I expect it will be some conversation about that in the in the current rate case, because you're exactly right on the on the impact to that.
If you don't do a tracking mechanism of some sort or some kind of.
A regulatory mechanism then it just pushes you into a pretty continuous rate case filing stream.
And so there's value we thinking that but again, that's part of what I expect we'll be the evidence that will be hurt in the and the rate case that we've got on file right now.
Got it thanks, guys that was the only questions if actually I think sharp.
Our next question comes from the line of Durgesh Chopra with Evercore. Please proceed with your question.
Hey, good afternoon team. Thanks for taking my question.
Mr. Dan.
Great. Thank you on the on the on the guidance front the reduction in interest expense, it's partly driven by higher if you do you see what is driving that and are you just as you mean lower rates now in the updated assumption.
Yeah, that's exactly right its updated with our current financing current rate and then higher net of higher if you do see than originally projected.
Understood. Thanks, and then just one small net capex plan did not change, but the rate base is modestly higher this maybe too much into the weeds.
I'm looking at your slide where you actually put out rate base and break it into the company in Fourq and its modest the hybrid the capex by Didnt change what is driving that.
Yes, so that's just simply an update in the rate base a projection given the capex forecast that we previously released we did not change any of our forward looking projections in the last quarter, but as you can see this time, we updated most to reflect both impacted code as well as uptake rate base to be in line with recently issued.
Capex forecast so it's just getting those two insync I get it. So so this is this busy up to date and ties with your most recent capex forecast.
That's correct okay understood.
Thank you and then just one last question.
In terms of did the that good trends and demand trends.
You're saying.
You are pretty conservative in and for the back half of the year, assuming that the trends.
As to what you saw in Q2 would that would you into high end of the guidance range.
Well I think it's too early to project or you know that covert situation still fairly uncertain, but the way I think about it is we're pleased to see that since the reopening in mid may we've seen a the decline in commercial sales be evenly offset by the increase of residential and that's an important metric for us but the other not we'll just continue to focus.
So on a how Ah things normalize for the balance of the here.
Understood guys. Thank you for taking my questions be say thanks.
They say.
Our next question comes from the line of Insoo Kim with Goldman Sachs. Please proceed with your question.
Thank you.
First question regarding the.
Not that delayed.
Testimony and bad the filings associated with that I correct me, if I'm wrong, but seems like a hotel opened up the possibility of a change in.
The test year for this rate case is that correct. Then that is the case what are the process and if it were to change would it be the commission's decision.
By a certain day to to make that happen.
No I don't think in suits not a change in test year, you may change some of the pro Formas I mean, that's something we'd have to look out for the rebuttal.
For the rebuttal case, but a the test here was the tester we file.
And again, we make I make adjustments and post test year plan and other things to that tester.
Right.
In terms of opposed tester adjustments would allow you with as a way to extend a timeline for pursuit tester investments.
Uh huh.
I mean, I guess, that's possible I think you'd have to see how the case would it would have off.
Got it and then in terms of the renewal process.
Following up on a couple of the other questions I think at this point in Arizona that it's more of an acknowledgment are not acknowledgement.
Process for when you file in our RP as you weight into.
All of the capacity investments and renewable than storage over the next few years are there any conversation, but you're trying to have with the commission to establish a more of a soft approval our technology acknowledgement of target.
No for those type of investments.
Yeah, there I guess I'd say, there's an off market in China that she's got it a different.
Some additional information but.
Hierarchy process itself is an acknowledgement process right and there are some discussions about what would happen.
With that under the new energy roles or.
That's probably a topic of discussion that could come up in the new energy rules debate.
When you get into that in the individual our cheez. It gets a little more nuance because there could be things to do require commission approval and there could be things that don't and a lot of cases, you wouldn't be going through a citing committee approval. Because these are thermal plants. So they're not subject to this state citing act.
But I think there there it's going to be something we'll watch as the rules evolve as to how the approval process goes forward you want to add anything Barbara Yeah. Hey, This is Barbara Lockwood I would say the way to think about is that the conversation is evolving to more engagement with the condition and stakeholders through both the Iraqi process as well.
RFP process.
And approval our acknowledgement, it's all in discussion on various components associated with that but really the best way to think about it right now discussion here how to engage more with the connection through those processes as well as with the stakeholders nothing definitive in that regard.
That makes sense.
That's all I had thank you and equal.
Yeah. Thanks.
Our next question comes really to Paul Patterson with Glenrock Associates. Please proceed with your question.
Hey, good morning.
Paul.
I apologize if <unk>, it's like if I missed this but the sales growth change over the long term.
What else.
What caused you to change that.
Oh, that's really just reflecting the flat to negative or expected weather normalized sales growth. We see in 2020, so given it's a three year period, including 2020, we just wanted to make sure that we updated that period to reflect the expected 2020 results and impacts as a result to covert.
Okay. So.
So the suing cobiz over [laughter] whenever that is you guys don't really is expect to see a sort of or are they a catch up so to speak you see basically just sort of.
Things progressing pretty much as they were before is that the right way to think about it. So it's kind of the last year as opposed to.
Well stupid people told me that cobot will cause a a decrease for this year and then off of that then as then you'll get back to where you were before your growth rate will be the same but there won't be some big rebound in terms of catch up is that the right way to think of it.
I think thats, probably way to think about it you know a couple of data points for you as I mentioned that the economy remains robust.
And virtually every measure you looked at it if you look at June of course, the most recent month in this period, we had 2.5% customer growth, we had 0.8% weather normalized sales growth and that's that's during what I would still consider to be a covert period.
I looked at a future difficult to predict of course, but we wanted to make sure. We reflected updated guidance over the next three years that did include the impacts were saying in 2020.
That said those numbers do exclude contributions we'd expect from Datacenters and so that provides upside as well. Okay. And then you also mentioned and I apologize if I didn't get it completely but you mentioned something about your peak gross hasn't been changed I think were I apologize again I've heard it but I got slightly distracted could you elaborate a little bit more on on.
What you meant by the P. quotes and and how that.
I guess, it's still driving your it doesn't in other words your capex is less affected I guess by the the sales growth itself, but more by the peak wrote.
Yeah, that's exactly right all in one of the key pieces as regardless of annual sales growth. We are planned for the long term to ensure that were there on the hottest stay that you are when our customers need that's the most and that's the peak demand day. This year that peak demand day increased demand by over 300 megawatts compared to the last all time high.
Which is significant and that's really what's driving our resource procurement needs and the integrated resource plan for the long term is making sure that we've got resource capacity plus reserves to maintain reliable service during peak demand on the forward looking basis.
Okay, and that really hasn't changed that that really hasn't okay. So okay and I think the most my questions have been asked and answered though just on the energy rules I mean, there does seem to be some sort of an impasse I guess or at least currently and I know the commission probably will be changing in November so.
Any thoughts on that or does it have any because it's so just a wait and see sort of situation or is there any other take away from that do you think.
Paul This is Barber Lockwood I think thats true, there's a philosophical online on many parts of the energy wrong.
Feature and process from a making parking getting through two a month.
It could be complicated and it's just a wait and see right now there are discussing it again today to see if they can find a process to move forward, but at this point. It really is just wait and see it from a procedural perspective, if they can get anywhere.
Okay, great. Thanks, so much.
Thank you.
Our next question comes from the line of Charles Fishman with Morningstar. Please proceed with your question.
Good morning, Hi.
You have consistently let Scott Davis of gross out of your forecasts, which certainly make sounds becomes I guess that moves the needle on I guess my just general question is what this worked at home.
A trend going on a and potentially benefiting data center growth are you seeing anything specific to the Phoenix area.
With respect to the data center growth that you can provide color on.
Yeah, Charles that's a that's an insightful question. The short answer is nothing specific that we can point to but you know when we looked at technology trends and expected datacenter demand. We certainly recognize the point, you're making which is if you have to parallel keeps systems and data up and running both that and corporate network and a at home then there's the potential to increase demand.
But I'd say, that's that's hypothesis by many and nothing specific that we can point to at this time, our focus for the dataset of growth is really a the customers that we know that were interconnecting that we are building out capacity for and it's still early in that process. As you can probably imagine we plan for their peak capacity, but what they actually you.
Use is a uncertain until they start to fill out the show the data center and so that's why we exclude it because it's got a some long term.
Very strong demand, but it's just unclear on the trajectory in which a they fall to fill up that that demand.
Okay that was all I had last thank you.
Thank you.
Our next question comes from the line of Julien Dumoulin Smith with Bank of America Merrill Lynch. Please proceed with your question, Hey, Hey, guys. Good morning, and good afternoon takes the time, one or we visit a subject a little bit here, but I wanted to address it more directly.
It's pretty sub clean energy and in in your outlook for next year in the year after.
He made a losing critically the call about a potential for some sort of tracking mechanism to avoid a subsequent case in the context of the current case you talked about recovery can more directly what would be sort of ideal Avenue for pathway recovery and then secondly, we extends which at this rate cases.
Perhaps protracted and broadly defined.
Do you feel Quizzically that you are you confident.
And you know practiced over 21 to the cumulative capital without having to certain to them because it lighter because that's right.
Good move it hadn't do it but this is it a project lined up and it didnt organizationally operationally ready to make those investments without the recovery right but.
Yeah, Jualin, you're a little muffled at a couple of times there I think I got the gist of your.
Of your question and and so you know yeah. We do plan in the case to talk about how a tracking mechanism you know could work in and what the existing mechanisms are I think that's gonna be a topic of a lot of discussion.
And enter the point that was raised earlier, if you don't have a tracking mechanism what happens and it just increases the pace of which you have to file.
Filed rate cases.
You know we've got a combination of the clean energy commitment I think general alignment on where clean energy is is going in that in the state from a lot of different from a lot of different parties and what you heard and I think my comments is that we also have a growing capacity need.
So we're gonna have to be a building out the a wind solar and batteries.
To meet the capacity needs that we're going to have a and so you know yeah, we'd like to tie it to a tracking mechanism and make sure we have a good discussion around that.
See if their existing mechanisms like the our yes or other things that we could potentially potential use and expect that's going to have a fair amount of discussion in the in the rate case.
But the reliability needs are going to drive some that spending as well.
Right, but maybe just to be clear about this operationally do you do you have project identified for 2021, I know you to let's say the recovery mechanism, but do you have the specific projects already.
Sort of teed up for 2021 that you would just be pursuing and what what's the nature of those projects. If you can speak to them. Just you know I know historically, there's been these competitive processes for large scale projects. What's the nature of what you would just be spending and 21 more specifically if you can speak to it.
Hey, Julien this is Daniel fracture you know prior to our make make an event.
We had a number of solar solar plus storage.
Projects teed up for progression through 21, 20 to 23 and.
And now goes Mcmaken will be dusting off and moving them a forward integrating the learnings from our mcmaken events that from an engineering design and safety standpoint.
Jeff has alluded to significant resource roll off occurring over the next few years.
Ted as alluded to customer growth.
So absent any tracker, we still have reliability in service obligations that we plan to me through the combination of wind solar and battery and have a every intention of doing so.
The benefit our customers we've got a couple of tranches of battery storage to accompany our Arizona. Some photovoltaic installations that we built the number of years ago. We've got a couple of PPA days that were teed up had been placed on the shelf synthetic making that we've been working with those suppliers a throughout the course of or Mcmaken learning.
To incorporate again, the safety design and engineering improvements that are needed there and we have a couple of current or piece out that Jeff mentioned in his opening remarks within which will be making decision shortly in either the wind solar or both spaces as it relates to those RFP. So there is real work in.
Right.
Yeah. Thanks, Daniel Julian I, just summarize by saying, we're going to execute on that 2021 capital plan or whether it be the RFP as Daniel mentioned or projects that we have coming up or we will be executing on that plant.
Yeah, so it sounds like you're pretty confident regardless of the constructs of recovery.
That's correct, although certainly recovery is what we've made clear as necessary to be able to.
Execute clean plan in the long term promote rate gradualism and ensure that you don't have cereal rate case filings.
Excellent alright. Thank you all very much of a great that yeah. Thanks doing.
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